Larry Connors RSI-2 Strategy Backtested Across 20 Years (With Code)
Date Published
1. The Logic Behind Ultra-Short Term Mean Reversion
Why 2-day panics create exploitable institutional liquidity voids
Developed by legendary trader Larry Connors, the RSI-2 system is one of the most rigorously tested quantitative retail swing strategies in financial literature.
While traditional technical analysts look at a 14-period RSI at 30, Connors discovered that shortening the lookback to 2 periods magnifies short-term sentiment extremes. When an institutional favorite in an established uptrend experiences aggressive algorithmic selling for two days, it triggers an immediate elastic snapback.
2. Historical Performance on S&P 500 Stocks (2004–2024)
Analyzing trade frequency, win rate, and profit factor over 12,400 setups
Running the RSI-2 algorithm across the liquid S&P 500 universe with 0.05% slippage and commissions reveals an extraordinarily high win rate accompanied by an asymmetric profit distribution:
3. Complete Python Implementation for Algo Execution
Clean vector and event implementation with automated position exits
Below is the complete algorithmic script to identify valid Connors RSI-2 candidates and generate execution orders: